Cityview: Rent Controls on the Edge

Shortly after the smoke cleared from the Rent Wars of 1997, Governor George Pataki wrote, “I believe these changes will create the greatest housing construction boom in 50 years. That will mean more available apartments, more affordable apartments–and more jobs for the people of New York.”

However, it’s more likely that the new rent laws will depress new construction and raise the rent on tens of thousands of units, exacerbating the city’s already high overcrowding rates. If enough people are forced to double up–young married couples staying with their parents, studios housing several tenants, two or more families sharing a few rooms–the city’s higher vacancy rate could trigger the end of all rent and eviction protections. Ironically, it could be a rise in the number of overpriced apartments that dooms New York’s rent laws.

City and state rent laws are based on a “housing emergency” defined as a citywide vacancy rate of less than 5 percent. If a higher percentage of rental units across the five boroughs are empty, rent stabilization must be declared at an end. As of the last count in 1996, citywide vacancy stood at 4.01 percent–up from 3.44 percent in 1993. The next count will be taken in early 1999.

If the vacancy census comes in above 5 percent, landlords will be free to charge market rents on all units and evict tenants when their leases expire. (The city’s older rent control laws, which now govern less than 10 percent of regulated units, would be discontinued “with due regard to prevent uncertainty, hardship and dislocation.”) If the current rent protections end, Assembly Republicans would likely argue that the emergency is over–so why should new rent laws be introduced?

The truth is, however, that a surplus of affordable housing doesn’t exist. In 1996, the average tenant devoted more than 32 percent of his or her income to rent–up from 20 percent in 1970. Declining real income among the bottom four-fifths of the city’s population over the past two decades has increased overcrowding rates. In 1984, about 7.7 percent of the city’s apartments were considered overcrowded. By 1993, overcrowding rates reached 10.3 percent, where they remain today.

Of the 81,000 apartments estimated by Census Bureau surveyors to be vacant and available in 1996, more than a quarter had rents below $500 per month. Anyone who has shopped around for an apartment in New York City will recognize that this figure is misleading. Thousands of these units are in low-rent single-room occupancy hotels where owners keep rooms empty for high-paying transient guests and often refuse to rent to long-term tenants who might then assert stabilized tenancy rights.

A closer look at the number also shows that the vacancy figures include about 17,000 vacant units that had been on the market for more than six months. It is hard to accept these units as vacant and available when they sat empty for so long. Another 6,000 “vacant” apartments were in projects run by the Housing Authority, an agency which currently has a waiting list of nearly 340,000 families.

Several factors could add a modest increase to this roll of empty units–enough to tip the vacancy rate over 5 percent. The fine print in the Rent Reform Act of 1997 vastly expanded luxury de-control laws that remove rent protection for relatively well-to-do tenants. In addition, through a Byzantine formula, substantial rent increases were allowed for all rent stabilized apartments that experience a tenant turnover (on average about 9 percent of the units annually). Landlords used to be allowed to take rent increases in the range of 5 to 12 percent when an apartment emptied. The new rent laws may produce hikes ranging from 18 percent to 40 percent. Combined, these changes will sharply raise the rent on tens of thousands of stabilized units.

As long as the economy remains strong, there may be enough young, bonus-laden professionals to pay these higher rents, but if the market hits a downturn, the newly expensive units will prove to be beyond the means of many. And even if the economy stays robust, many landlords may well push the envelope past what the housing market will bear. After all, the only way suppliers realize they have outstripped demand is by running a surplus for a while.

The governor does have one thing right: Fifty years ago the city did experience a tremendous housing boom, as it had in the 1920s. But the feverish construction rates after the two world wars occurred when strict controls limited rents in existing buildings. (Rent regulation has never been mandated for new buildings.) Developers who wanted to capture the surging demand for new housing driven by an upwardly mobile middle class wasted no time laying foundations.

Then–as now–if there had been no rent regulation, lower-income tenants who lacked the means to pay market rents would have been forced to double up. Overcrowding in market rate apartments would have resulted in more empty units in existing buildings and these vacancies would have discouraged new construction. Strict rent control kept vacancies to a minimum and gave developers irresistible incentives to build new units during periods of economic growth. That situation provided new housing–not just an illusion of abundant housing while middle- and low-income households double up.

Timorthy L. Collins, an attorney with the firm of Collins, Dobkin and Miller, LLP, is the former executive director of the New York City Rent Guidelines Board.

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